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4000 - Advisory Opinions
Well-Capitalized Institutions That Solely Offers High-Rate
Deposits Need Not Notify FDIC of Its Deposit Broker Status
FDIC--93--16
March 8, 1993
Valerie J. Best, Counsel
I am writing in response to your letter concerning brokered
deposits. I apologize for the delay in responding to your inquiry. Due
to the large number of inquiries we receive concerning brokered
deposits, we are not always able to answer as quickly as we would like.
You wrote to advise us that your institution is well capitalized, as
that term is defined in 12 C.F.R. 337.6(a)(10)(i). You stated that,
with rare exceptions, your institution does not solicit deposits by
offering interest rates that exceed the prevailing rate of interest in
your normal market area by more than 75 basis points. Based upon your
status as a well capitalized bank and the fact that you do not solicit
deposits by offering interest rates that exceed the prevailing rate in
the relevant market area by more than 75 basis points, you conclude
that your bank is not required to register as a deposit broker. I agree
with your conclusion.
Your letter raises the question of whether a bank or savings
association that is well capitalized and that is deemed to be a deposit
broker solely because it offers high-rate deposits to its customers,
must notify the FDIC of its status as a deposit broker. It is my view
that an institution that is well capitalized and that is deemed to be a
"deposit broker" (pursuant to 12 U.S.C. 1831f(g)(3)) solely
because it offers high-rate deposits to its
customers, 1
is not required to notify the FDIC of its status as a deposit broker
pursuant to section 29A of the FDI Act (12 U.S.C. 1831f--1), as
implemented by 12 C.F.R. 337.6(h).
The relevant regulatory and statutory provisions state that a
deposit broker "shall not solicit or place any deposit with an
insured depository institution" unless the deposit broker has
provided the FDIC with written notice that it is acting as a deposit
broker. Under the situation you describe, and assuming that the well
capitalized institution is a "deposit broker," it can be argued
that the institution is not placing deposits "with" an insured
depository institution. Rather, the well capitalized institution is
soliciting and accepting deposits on its own behalf. Consequently, I do
not understand this provision to require notification by well
capitalized institutions under the limited circumstances described
above.
{{6-28-93 p.4734}}
This interpretation finds support when considered in conjunction
with the remaining requirements of the notice regulations. Under these
regulations, the notice to be filed by a deposit broker must describe
the history, nature and volume of its deposit brokerage operations,
including the sources and placement of such funds. These requirements
have little relevance for a well capitalized institution offering
high-rate deposits. For example, the source of the deposits would
always be the institution's own customers, and the funds would always
be placed with the well capitalized institution itself.
As I understand it, the notification requirement is a means of
identifying deposit brokers. Should the need arise, the additional
recordkeeping and quarterly reporting requirements facilitate the
tracking of a broker's activities. 2
These purposes are not furthered by requiring well capitalized
institutions to notify the FDIC of their status as a deposit broker
under the limited circumstances described above. A well capitalized
institution that is offering high-rate deposits does not place such
deposits with other institutions. Consequently, requiring well
capitalized institutions to notify the FDIC would not further any
"identification" purpose. Since well capitalized institutions are
permitted to offer high rates in any event, nothing could be gained by
implementing the recordkeeping and quarterly reporting requirements.
It should also be noted that the statute and regulation require a
deposit broker to notify the FDIC when it ceases being a deposit
broker. As indicated by your situation, a well capitalized institution
may offer high-rate deposits on an intermittent basis. Nothing would be
gained by requiring well capitalized institutions to notify the FDIC
when they are about to offer high-rate deposits, and then requiring
them to revoke that notice when they stop offering such deposits.
In summary, it is my view that an institution that is well
capitalized and that is deemed to be a "deposit broker" solely
because it offers high-rate deposits to its customers, is not required
to notify the FDIC of its status as a deposit broker pursuant to
section 29A of the FDI Act, as implemented by 12 C.F.R. 337.6(h).
Please be advised that the views expressed in this letter are those
of the FDIC legal staff, not of the FDIC itself. The FDIC issues formal
interpretations of its rules, but only pursuant to rule-making
proceedings. The FDIC does not issue formal interpretations in the form
of individual letters or rulings on particular cases.
Please call me at (202) 898-3812 if you have any questions. Again, I
apologize for the delay in responding to your
inquiry.
1The relevant statutory provision provides:
(3) Inclusion of depository institutions engaging in
certain activities. Notwithstanding paragraph (2), the term
"deposit broker" includes any insured depository institution, and
any employee of any insured depository institution, which engages,
directly or indirectly, in the solicitation of deposits by offering
rates of interest (with respect to such deposits) which are
significantly higher than the prevailing rates of interest on deposits
offered by other insured depository institutions having the same type
of charter in such depository institution's normal market area.
12 U.S.C. 1831f(g)(3).
To the same effect, see 12 C.F.R. 337.6(a)(5)(iii). Go Back to Text
2The fact that a deposit broker failed to notify the FDIC of
its status does not relieve a depository institution from complying
with the brokered deposit restrictions when the depository institution
knows, or has reason to know, that it is dealing with a deposit
broker. Go Back to Text
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